FLASH PMIs
USA: Flash PMI indicates slowest business growth for ten months inFebruary
At 52.3 in February, down from 53.0 in January, the headline S&P Global Flash US PMI Composite Output Index signaled ongoing, but moderating, growth of business activity midway through the first quarter of 2026. Output has now grown continually for 37 months, but February’s rise was the weakest recorded since last April.
Growth slowed to modest rates across both manufacturing and services, down to seven- and ten-month lows respectively.
New orders growth likewise cooled, with factories reporting a slight drop in orders for the second time in the past three months while service providers reported a weakened, but sustained, inflow of new work. Both sectors reported falling export orders, which collectively fell at one of the steepest rates seen over the past year.
Companies cited high prices, stretched affordability, tariffs, and subdued confidence among customers as key drags on sales, though adverse weather was often noted as an additional factor disrupting business across both manufacturing and services during the month.
Sluggish sales growth and concerns over rising costs led to a further month of very modest employment growth, albeit with some companies also reporting difficulties finding staff. Payrolls rose only marginally for a third successive month and at the weakest rate since last April. Hiring slowed to marginal rates in both manufacturing and services.
Capacity constraints, combined with weather disruptions meanwhile caused backlogs of work to accumulate in the service sector at a rate not seen since May 2022, but backlogs fell in manufacturing as production often exceeded inflows of new work.
Supplier lead times into factories lengthened in February to a degree not reported since October 2022, when the pandemic disrupted supply chains. February saw deliveries delayed due to bad weather, but companies also reported congestion in supply lines and delays from abroad, in part linked to tariff policy. Inventories of inputs consequently fell in February to the greatest extent since January 2025.
Average prices charged for goods and services increased in February at the steepest rate since last August, rising at an elevated rate well above the survey’s long-run average. Although selling price inflation moderated in the manufacturing sector to a 14-month low, attributed to increased discounting to stimulate sales, services inflation jumped to a seven-month high, registering one of the strongest rates of increase recorded over the past three-and-a-half years.
Higher prices were widely linked to the need to pass through increased supplier charges, in turn often associated with tariffs, as well as rising labor costs. Measured across goods and services, input cost inflation ticked higher and remained elevated above long-run levels in both sectors, albeit below some of the peaks seen last year.
Companies’ expectations for output in the year ahead improved markedly in February, rising to a 13-month high. Greater optimism was seen in both manufacturing and services. Companies were hoping that better weather will help drive better sales after February saw many businesses hampered by extreme cold. Survey respondents also cited expectations of improving economic conditions based on supportive financial conditions, including lower interest rates and government policies such as tax breaks, as well as more aggressive marketing and investment in business expansion.
Despite February’s improvement, future sentiment was fractionally below its long run average, reflecting concerns among many businesses regarding the adverse impact of policies such as tariffs and the broader uncertain political environment.
The PMI data so far this year are indicative of GDP rising at an annualized rate of just 1.5%, signaling a marked cooling of the economy in the first quarter compared to the robust growth rates seen in the second half of last year.
S&P Global’s 1.5% GDP growth rate for Q1 is below Goldman Sachs’ which sees +3.4% after incorporating a 1.3pp contribution from the end of the government shutdown in 2025Q4 (which S&P did not do). GS forecasts “2.5% GDP growth for 2026 Q4/Q4, a 0.3pp acceleration from 2025 Q4/Q4 that partly reflects the fading drag from tariffs giving way to a boost from tax cuts.”
KKR modestly upgraded their 2026e US GDP forecast to +2.5% from +2.3%, reflecting the ongoing strength we are seeing across techrelated capex and consumer services spending.
The more important signals we draw from this report are the fundamental momentum we are seeing in tech capex and consumer services spending.
Tech-related capex grew at a blistering 19% annualized rate in 4Q25, contributing 1.1 percentage points to growth in the quarter (i.e., fully 78% of 1.4% net growth). Growth was robust across major categories including tech equipment spending (+36% SAAR), data center construction (+18% SAAR), and software investment (+7% SAAR).
Software spending looks even stronger on a y/y basis at +14%, which is near the highest rate we have seen in the past 10+ years – an interesting counterpoint to consider amid the current market volatility for the sector.
Capex trends look increasingly ‘K-Shaped’ across tech vs. non-tech spending. As mentioned, techrelated capex grew near 20% y/y, while non-tech capex contracted by 4%. This dynamic contributes to the broader “K-shaped” patterns we are seeing including high vs. medium/low-income households and mega-cap vs. smaller companies.
In aggregate, consumer spending remains robust, particularly on the services side. Real personal consumption spending grew +2.4% annualized in 4Q25, which we consider particularly resilient for a quarter with essentially zero employment growth.
Services spending was particularly robust at +3.4%, while goods spending was stagnant at -0.1%. We expect the consumer backdrop to remain healthy in 1H26, amidst OBBA-related tax rebates.
Eurozone business activity rises at fastest pace in three months
(…) Faster increases in activity were recorded across both the manufacturing and services sectors in February. The more notable acceleration in growth was in the manufacturing sector. Here, the rise in production was the sharpest since August 2025, outpacing the expansion in services activity for the first time since that month. Highlighting the improvement in the manufacturing sector during February, the headline PMI rose to a 44-month high of 50.8, posting above the 50.0 no-change mark for the first time in six months.
Back at the composite level, Germany posted a solid increase in business activity that was the fastest in four months, while France registered broadly no change in output since January. The rest of the eurozone continued to see output increase, albeit at the slowest pace since June 2025.
While the expansion in euro area business activity picked up in February, the rate of new order growth was unchanged from the start of the year, remaining marginal. Manufacturing new orders increased for the first time in six months, and at the fastest pace in almost four years, but services new business growth slowed. New business from abroad (which includes intra-eurozone trade) fell again, with the pace of reduction broadly in line with that seen in January. (…)
Input costs increased sharply in February. The pace of inflation quickened again to reach the joint-fastest in 34 months, equal with that seen in February 2025. The acceleration in the overall rate of increase was driven by manufacturers, where input costs rose at the fastest pace since December 2022. Meanwhile, services input prices increased at a slightly slower pace than seen in January.
While the pace of input cost inflation quickened in February, firms raised their selling prices at a slightly softer pace. Nonetheless, the latest increase in charges was still solid and the second-fastest in the past year. In line with the picture for input costs, a faster rise in manufacturing selling prices contrasted with a slower pace of inflation in the services sector. Charges were up solidly in Germany, but French firms lowered their output prices for the first time in three months. The rest of the eurozone posted an accelerated rise in charges.
Japan: Private sector activity in Japan expands at steepest pace since May 2023
(…) A solid and accelerated rise in composite new business was also observed in February. In line with the trend for business activity, the rate of growth was the quickest since May 2023. While new orders expanded at the fastest rate in 22 months at service providers, manufacturers recorded the steepest increase in sales since the start of 2022, with businesses often noting firmer underlying demand conditions and the positive impact of new product releases.
Japanese companies also signalled stronger overseas demand, with composite new export orders expanding at the fastest rate in eight years, largely driven by a further rebound in demand for goods.
US GDP Grows 1.4%, Missing Forecasts on Shutdown, Trade
Inflation-adjusted gross domestic product increased an annualized 1.4% in the fourth quarter after rising 4.4% in the prior period, according to the government’s initial estimate out Friday. Overall, the economy expanded 2.2% last year, data from the Bureau of Economic Analysis showed.
The weak quarterly result — which was below all forecasts in a Bloomberg survey of economists — came as the US government was shut down for almost half of the three-month period. The BEA said the reduction in federal services during the shutdown subtracted about 1 percentage point from GDP, though the full impact couldn’t be estimated. (…)
“Strip out the shutdown drag and growth looks closer to 2.5%, with the US consumer still carrying the load and AI-linked investment doing real work,” Olu Sonola, head of US economics at Fitch Ratings, said in a note. (…)
Separate monthly BEA data out Friday showed the Fed’s preferred measure of underlying inflation — known as the core personal consumption expenditures price index — rose 0.4% in December, the most in nearly a year. On an annual basis, the core PCE, which excludes food and energy, climbed 3%, compared to 2.8% at the start of 2025. (…)
Consumer spending, which comprises the largest share of economic activity, decelerated to a 2.4% pace from 3.5% in the prior period. The slowdown was mostly due to less spending on durable goods like cars. Health care services spending rose to a record as a share of GDP.
Net exports also weighed on fourth-quarter growth, barely adding to GDP after boosting growth in the middle of the year. (…)
Business investment grew by 3.7%, powered by information processing equipment, reflecting the boom in AI spending. (…) Excluding computer equipment and software, business investment has declined in each of the last three quarters.
Because swings in trade and inventories distorted overall GDP last year, economists are paying closer attention to final sales to private domestic purchasers, a narrower metric of demand. This measure rose at a 2.4% pace in the fourth quarter, also a slowdown but still solid. (…)
Data: Commerce Department. Chart: Axios Visuals
Nominal expenditures on goods declined 0.1% MoM in December, confirming the previously released flat retail sales. Calendar quirks were mentioned to explain the soft December. November-December were up 2.5% YoY in nominal, +1.0% in real terms, markedly below the 3.1% growth rate for the whole year and +3.0% in Q3.
Spending on durable goods was –2.8% YoY in December after +2.7% and +1.6% on average in the previous 7 and 3 months. Full year 2025: zero growth! The splurge is officially over.
The Real Tariff Liberation Day Arrives at the Supreme Court
A 6-3 Supreme Court majority on Friday struck down President Trump’s sweeping emergency tariffs (Learning Resources v. Trump) in a monumental vindication of the Constitution’s separation of powers. You might call it the real tariff Liberation Day.
It’s hard to overstate the importance of the Court’s decision for the law and the economy. Had Mr. Trump prevailed, future Presidents could have used emergency powers to bypass Congress and impose border taxes with little constraint.
As Chief Justice John Roberts explains in the majority opinion, “Recognizing the taxing power’s unique importance, and having just fought a revolution motivated in large part by ‘taxation without representation,’ the Framers gave Congress ‘alone . . . access to the pockets of the people.’” (…)
Plan B: (WSJ)
(…) We have Section 301 tariffs of up to 25% on around half of all Chinese imports, due to alleged unfair trade practices by Beijing. We also have global Section 232 tariffs of up to 50% on imports of steel and aluminum, automotive goods, heavy-duty trucks, copper, and wood products—each imposed on grounds that these goods threaten U.S. national security.
The Trump administration has also created a process whereby “derivative” products made from goods subject to Section 232 tariffs will be covered by those same tariffs. This “inclusion” system is mind-bendingly complicated and has already doubled the coverage of Mr. Trump’s steel tariffs. Several other Section 232 investigations—on semiconductors, pharmaceuticals, critical minerals, commercial aircraft and more—were initiated in 2025, setting the stage for more tariffs in the weeks ahead.
(…) he announced a slate of new actions to replace his IEEPA tariffs. This includes the current 232 actions, initiating new investigations under Section 301, and imposing a global 15% tariff under Section 122 of the Trade Act of 1974, which empowers the president to address “large and serious” balance-of-payments deficits via global tariffs of up to 15% for no more than 150 days (after which Congress must act to continue the tariffs). The administration might later consider Section 338 of the Tariff Act of 1930—a short and ambiguous law that authorizes the president to impose tariffs of up to 50% on imports from countries that have “discriminated” against U.S. commerce—but this is legally riskier.
These measures will create global tariff regime similar to what Trump imposed under IEEPA. The main difference—and the main benefit for America’s economy and trading partners—would rest in how the president does so. IEEPA was essentially an Oval Office “tariff switch” that Mr. Trump could flip on and off at any time, for any reason and in any amount. This created massive uncertainty and crippling complexity for businesses, foreign governments and the U.S. economy.
The alternative authorities, by contrast, have substantive and procedural guardrails that limit their size and scope or, at the very least, give companies time to prepare for tariffs (or lobby against them).
To be sure, “guardrails” is a relative term for a president who has already stretched Section 232’s “national security” rationale to cover whipped-cream cans and bathroom vanities. And the courts have largely rubber-stamped the administration’s previous moves under Sections 232 and 301—a big reason why the tariff Plan B will feature them. Abuse is likely, as is more litigation. And unlike with IEEPA, we shouldn’t expect the courts to save us.
The justices’ ruling is an important victory for constitutional governance and will eliminate the most destabilizing element of Mr. Trump’s tariff regime. But until Congress reclaims some of its constitutional authority over U.S. trade policy and limits the president’s legal tariff powers, costly and erratic tariffs will remain the norm in the U.S., to our economy’s great detriment.
(Bloomberg)
(…) The president said in the afternoon the US would impose a 15% levy on foreign goods under a different law. It took several hours before the White House clarified it’s leaving in place an exemption for many goods shipped under the US-Mexico-Canada Agreement.
That exemption means the effective tariff rate for Canada and Mexico will decline. Until the court decision, products that didn’t qualify for the USMCA exemption were taxed at 35% if from Canada and 25% if from Mexico.
For Mexico and Canada, the events provided more proof of the value of the tripartite trade deal, which was signed during Trump’s first term. But the president’s frustration over the court’s decision also raises the risk he may try to radically alter or even blow up USMCA altogether in pursuit of the tariff revenue he wants. (…)
“The president didn’t lose his leverage, he just lost a lever,” said Barry Appleton, a trade lawyer who has advised governments including the Canadian provinces of Ontario and British Columbia.
Now, he said, “we’re going to see weaponizations of a variety of different tools that were never, ever conceived of in that way, utilized in that fashion, because the president does not want to go to Congress.”
Before Friday’s development, the effective US tariff rate on Canadian goods stood at around 3.7%, according to estimates from Desjardins economist Royce Mendes. For Mexican products, the effective rate was about 4.4%, according to Grupo Financiero Base. It will be slightly lower for both. (…)
“The Trump administration could expand section 232, and in that case there’s going to be an increasing number of Mexican and Canadian exports subject to tariffs.” That’s the part of US trade law being used for the metals and automotive tariffs. (…)
Marroquin said it may become harder for the three countries to successfully extend the USMCA. The deal is up for review this year and the White House has made it clear it wants changes. Trump has privately asked aides why he needs to keep the pact going, Bloomberg has reported.
“It is basically putting more wood to the fire,” Marroquin said. “It is making it more painful for Mexico and for Canada to trade with the US even if they comply with the trade agreement.” (…)
The reality is that even before the court decision, Trump had started to quietly peel back some of the import taxes, in response to a public outcry over rising grocery bills and lobbying from chief executive officers. The administration is now revisiting how it applies steel and aluminum duties with an eye to reducing the impact on consumer goods, from canned drinks to underarm deodorant.
On New Year’s Eve, as Trump hosted a party at Mar-a-Lago, the administration said it was delaying new tariffs on kitchen cabinets and furniture. In November, import taxes on bananas, beef, coffee, chocolate and other imported foods were removed.
The White House has delayed the rollout of semiconductor and pharmaceutical tariffs that would raise the cost of imported consumer electronics and drugs. Trump has also pledged to send out $2,000 “tariff dividend” checks to all but the richest Americans and announced a $12 billion aid package to compensate farmers for lost exports.
The US Chamber of Commerce and the National Retail Federation were among the industry groups to immediately push for reimbursement for the billions of dollars in duties paid since Trump’s tariffs took effect last year. (…)
Neil Bradley, the group’s chief policy officer, said: “Swift refunds of the impermissible tariffs will be meaningful for the more than 200,000 small business importers in this country and will help support stronger economic growth this year.”
Dan Anthony, executive director of We Pay the Tariffs, a small business coalition opposing the levies, said it was “imperative that that money is then given back without some of these onerous processes”.
“Full, fast automatic refunds is really where our focus is going to be.”
FYI: These refunds could be remarkably easy: With almost all duty payments now made electronically, and with every IEEPA-related import assigned a specific tariff code, U.S. Customs and Border Protection could return most of the money owed to importers, with interest, at the push of a button. In several past cases, CBP has issued automatic blanket refunds covering many years and billions of dollars, and duty refunds in general are a daily occurrence. (WSJ)
Trump on Friday said it was “crazy” that the Supreme Court did not address whether the administration needed to issue refunds for tariff payments based on the ruling. “It’s not discussed. We’ll end up being in court for the next five years,” he told a press conference.
US Treasury secretary Scott Bessent echoed Trump’s remarks, indicating refunds were unlikely to be paid anytime soon.
“My sense is that could be dragged out over weeks, months, years,” Bessent said at an event in Dallas, Texas. “I’ve got a feeling the American people won’t see it.”
When a deal is a deal:
The Treasury chief also called on US trading partners that have already reached agreements with the Trump administration based on the IEEPA tariffs to abide by them.
“I think that everyone is going to honor their deal,” he said on Fox News. He also said the Supreme Court had reaffirmed that the president has the right to “a complete embargo,” so that poses a “draconian alternative” for other nations. (BB)
Higher U.S. Tariffs Not to Blame for Jump in Chinese Exports to Europe, ECB Says The central bank’s economists say the increase in exports from China was due to developments under way before Trump hiked tariffs
Higher U.S. tariffs are not the main reason for a surge in Chinese exports to the eurozone, Africa and other parts of Asia, according to economists at the European Central Bank.
While President Trump last year hiked tariffs on imports from countries around the world, the duties faced by Chinese businesses are higher than most other countries. That has led to a sharp fall in Chinese exports to the world’s largest economy.
Policymakers around the world feared that Chinese businesses would look elsewhere for buyers of goods that they could no longer sell in the U.S., a process known as trade diversion that would lead to even fiercer competition for their local rivals.
However, by comparing the impact of the various tariff rates faced by Chinese goods in the U.S. with changes in imports of those goods elsewhere, the ECB’s economists concluded that there was little evidence of trade being diverted to the eurozone, although they did find some signs of diversion to Africa and countries in the Association of Southeast Asian Nations.
“Overall, trade diversion accounts for only a limited role in recent Chinese export dynamics, with other factors playing a more prominent role,” the economists wrote. (…)
“Unfair competition, especially from China, puts a lot of pressure on us,” French President Emmanuel Macron said Thursday ahead of a meeting of EU leaders to discuss the bloc’s response to its new economic challenges.
But the ECB’s economists concluded that the increase in imports was due to developments that were under way before Trump hiked tariffs, rather than diversion that might ease if the tariffs were to be reduced.
“Weak domestic demand has pushed Chinese firms to channel excess capacity abroad, supported by falling export prices, competitiveness gains reinforced by a weak currency, and state-led expansion of manufacturing capacity,” they wrote.
The sharp increase in Chinese imports might also be a problem for the ECB. The eurozone’s annual rate of inflation fell to 1.7% in January, and the ECB’s economists expect it to stay below the 2% target for this year and next.
Policymakers expect inflation to return to their target in 2028, and don’t see the miss as large enough to warrant a response in the form of further rate cuts. But should the inflow of cheaper Chinese goods continue, the risk of a deeper, sustained drop in inflation will increase.
Trump Will Travel to China in Late March for High-Stakes Xi Meet
US President Donald Trump plans to travel to China from March 31 to April 2 for a meeting with his counterpart Xi Jinping as the two leaders will look to navigate a trade relationship again plunged into uncertainty and navigate tensions around Taiwan. (…)
The US president said he expects a welcome that includes pomp and ceremony that surpasses his visit to Beijing in 2017 during his first term.
“President Xi, he treated me so well, he gave me a display, I never saw so many soldiers all the same height, exactly the same height,” Trump said. “But I said, ‘You’ve got to top it.’ He said, ‘I’ll top it. We’re going to top it.’” (…)
High expectations!
In Trump’s first visit to China since 2017, he will discover that China is far from being where the US “borrows money from Chinese peasants to buy the things those Chinese peasants manufacture” as Vance said last April.
BTW:
Brazil, India Seal Rare Earth Deal Amid Global Supply Strains
Brazil and India sealed a framework pact on critical minerals with the two countries agreeing to work closely on processing in a move aimed at securing rare earth supplies at a time of global disruption. (…)
Brazil, home to the world’s second-largest reserves of rare earths, offers India a potential alternative source of supply as it seeks to reduce reliance on China and secure inputs critical for electronics, clean energy and defense. The deal comes soon after India joined the US-led Pax Silica initiative to build resilient supply chains in semiconductors, artificial intelligence, and critical minerals. (…)
Brazil and India are strengthening cooperation, in part to emerge as leading voices for the developing world and seek greater influence over the technologies and supply chains reshaping the global order. (…)
New Delhi and Brasilia sought closer ties after US President Donald Trump slapped both countries with 50% tariffs. Indian tariffs were subsequently lowered to 18% after it signed a trade deal earlier this month. (…)
Trump Eases Mercury Rules for Power Plants in Bid to Boost Coal The Environmental Protection Agency rolled back limits on mercury and other toxic air pollutants for coal- and oil-fired plants.
The Environmental Protection Agency on Friday rolled back regulations limiting mercury and other toxic air pollution from power plants, the latest in a series of moves by President Donald Trump’s administration designed to boost the nation’s shrinking coal sector.
The 2012 Mercury and Air Toxics Standards for power plants rule — called MATS for short — requires the facilities to reduce emissions of mercury and other metal air pollutants, such as arsenic and lead, which have been linked to heart attacks, cancer and developmental delays in children. (…)
“The Trump EPA knows that we can grow the economy, enhance baseload power, and protect human health and the environment all at the same time.” (…)
The EPA says the new MATS rule could save $670 million starting in 2028 through 2037. In the final rule, the agency acknowledged that it did not quantify the human health effects resulting from changes in emissions of small particulate matter called PM2.5, nitrogen oxides, or NOx, and volatile organic compounds, or VOCs. The Biden EPA had estimated its strengthened rules would yield $300 million in health benefits and an additional $130 million in climate benefits.
The policy change comes days after the agency scrapped a scientific determination that climate change poses a threat to human health, and with it, greenhouse-gas standards for vehicles. (…)
- The FT:
Trump has made supporting the coal industry a significant objective of his second term, arguing that “beautiful, clean coal” is needed to meet booming electricity demand and shore up the grid in times of stress like extreme weather.
The administration has used emergency powers to keep open five coal plants that were scheduled for retirement, directed the defence department to buy coal-fired electricity and relaxed emissions and environmental standards which regulate coal ash disposal.
Just as leaded gas was a “cheap” fix for engine knock that cost trillions in lost human potential, easing mercury rules provides a “cheap” fix for power grid demands that may result in long-term health burdens for the next generation.
- Trump order to promote weedkiller sparks fury in MAHA movement Allies of Health Secretary Robert F. Kennedy Jr. are frustrated that the Trump administration has embraced chemicals that they say harm human health.